Ouais Group Engineering & Contracting v Saipem Spa and Others
| Jurisdiction | England & Wales |
| Judge | Mr Justice Popplewell |
| Judgment Date | 26 March 2013 |
| Neutral Citation | [2013] EWHC 990 (Comm) |
| Docket Number | Case No: 390 of 2013 |
| Court | Queen's Bench Division (Commercial Court) |
| Date | 26 March 2013 |
[2013] EWHC 990 (Comm)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
Rolls Buildings
7 Rolls Building
Fetter Lane
London, EC4A 1NL
Mr Justice Popplewell
Case No: 390 of 2013
Mr S Houseman QC (instructed by Addleshaw Goddard) appeared on behalf of the Claimant
Ms V Buehrlen QC (instructed by Clyde & Co) appeared on behalf of the Defendant
This is an application by the Claimant, OGEC, for interim injunctions to restrain the Defendants, whom I shall call Saipem, from making demands under six performance bonds and two advance payment guarantees, and to require Saipem to withdraw or countermand all requests and demands that have already been made under those performance bonds and guarantees.
OGEC is a Lebanese engineering and construction company. The First Defendant, Saipem SpA, is incorporated under the laws of Italy and is a subsidiary of Eni SpA. The Second Defendant ("Saipem Algeria") is a subsidiary of the First Defendant, and is incorporated under the laws of Algeria. Saipem are the main contractors in relation to two Algerian pipeline construction projects. Between May 2009 and November 2011, Saipem entered into a number of subcontracts relating to those projects whereby OGEC were appointed as the subcontractors. In accordance with the terms of those subcontracts, OGEC procured a series of performance and advance payment bonds, issued and confirmed by two banks (one bank in relation to each of the projects). One was Bank Audi SAL Group and/or Bank Audi SAL France, Paris, to which I will refer as Bank Audi, and the other was Fransabank SAL and/or Fransabank France SA, to which I will refer as Fransabank.
The advance payment guarantees or bonds were all first demand bonds; that is to say they were payable on demand by Saipem without any prior notification. Each of them is expressly governed by English law and provides for the exclusive jurisdiction of the English courts. I shall refer to them simply as the bonds. The amount secured by the bonds totalled just under €33.5 million. Of that, about €16.5 million was secured by the bonds issued by Bank Audi and about €17 million by those issued by Fransabank. OGEC were required to lodge with the banks as cash collateral a sum of approximately €20.7 million. In the case of Bank Audi, the amount was 100 per cent cash collateral; in the case of Fransabank, it was only 25 per cent cash collateral.
There came a time when OGEC failed to perform its obligations under the subcontracts from 2011 onwards and possibly before then. The reasons were said to be civil unrest in Syria, which led to the unavailability of OGEC personnel: and cash-flow problems, which meant that OGEC was unable to pay its own subcontractors in Algeria. Saipem allege that OGEC committed a number of breaches of the subcontracts. One aspect of those breaches which is admitted, is that OGEC was unable to pay, and failed to pay, its own subcontractors, with the result that Saipem paid such subcontractors on OGEC's behalf sums totalling in excess of €22 million in January 2012.
Mr Chapman, in a witness statement on behalf of Saipem, has identified a number of claims or potential claims, which he says are claims for sums validly owed to Saipem by OGEC. Those total a little in excess of €109 million, although it is accepted that some €13.7 million falls to be deducted from that in respect of an insurance claim which has been paid to Saipem. Nevertheless, as now quantified, Saipem assert claims against OGEC of about €95 million.
As a result of OGEC's difficulties, it was agreed between the parties that the subcontracts should be brought to an end, and they were the subject matter of a termination agreement, which was executed between the parties on 6 April 2012. The recitals recorded that OGEC had declared that it was facing severe cash-flow issues, and that it required yet further advances. In particular, it sought an additional advance amounting to about €36.4 million. Clause 1 of the termination agreement provided that with effect from 30 April 2012, OGEC would cease all activities under the subcontracts (subject to some particular excepted activities which were identified in clauses 4 and 5). Clause 1 went on to provide:
"Any and all bank guarantees in place shall remain valid."
Clause 6 of the agreement provided that there should be further negotiation and discussion with a view, if possible, to reaching a settlement agreement, which would deal with all claims and cross-claims and outstanding liabilities. It provided:
"The PARTIES shall meet upon SAIPEM request but in any case not later than 30 th June 2012 (or any other later date determined by SAIPEM at its own liberty) in order to discuss outstanding items under the SUBCONTRACTS, as defined under this AGREEMENT … in view of finding a mutually acceptable agreement (hereinafter referred to as 'SETTLEMENT AMOUNT')."
The termination agreement went on to provide that:
"The foregoing shall be subject to final review and approval by SAIPEM Procurement Department."
That provision remained included in the agreement as signed by both parties.
There was an addendum to the termination agreement, the only material part of which is that the date for the meeting in relation to seeking to agree a close out agreement was extended to not later than 31 October 2012 or, again, such other later date as might be determined by Saipem.
The negotiations in relation to the close out agreement, so far as disclosed by the evidence before me, started on Wednesday, 31 October with an email of that date sent by Mr Careddu, the managing director of Saipem Algeria, to Ms Trolese, the director acting for OGEC, enclosing what was described in the subject line as close out agreement revision 3. The email said,
"Reference to our telecom, please find draft for close out."
Ms Trolese says this was the first draft. It is not clear from the evidence to what extent there had been any significant negotiations before this point in the history.
There was then a meeting on 22 November. Ms Trolese describes this in her witness statement, with the two relevant aspects covered in paragraphs 13 and 15. At paragraph 13, she says that it was agreed at that meeting with Saipem that all of the bonds would be released and replaced with a new guarantee. Mr Careddu, she says, specifically noted that it was expected and understood by Saipem that Saipem would release and extinguish the bonds simultaneously with the issuance of the new guarantee. She deposes that Mr Careddu understood that a new guarantee could not be issued first, that he was fully aware of the severe financial difficulties that OGEC was experiencing including difficulties with paying its suppliers, and this meant that OGEC would be unable to provide a new guarantee whilst the bonds were still outstanding. She says that both Saipem and OGEC understood this arrangement to be reflected by the word "replace" in clause 4 of the draft of the close out agreement, which was under discussion at that stage. I shall come to the wording of clause 4 in due course.
So far as that is concerned, Mr Chapman, on information and belief from Mr Careddu, responds at paragraph 78 of his witness statement by saying that Mr Careddu had informed him that, when negotiating the terms of clause 4 with OGEC, he had expected that the issue of the new guarantee would coincide with the cancellation of the bonds almost as if it were one simultaneous transaction; but that Mr Careddu said that he did not expect there to be any stage during which Saipem was unsecured, and that Mr Careddu was never aware that it was OGEC's intention that the new guarantee would not be issued until the original bonds had been cancelled; this would have been a financial risk that Saipem would not have accepted.
The second aspect is that Ms Trolese says that, at that meeting, she confirmed with Mr Careddu that Saipem were happy for the new guarantee to be issued by Fransabank, and Mr Careddu confirmed that that was acceptable. Mr Chapman said, in relation to that allegation, that Mr Careddu had informed him that he did not agree to that, and indeed that he did not have the authority to agree to that. Mr Careddu said, so Mr Chapman deposes, that he told Ms Trolese at that meeting that OGEC was free to propose to Saipem that the new guarantee be issued by Fransabank but that he made it clear to Ms Trolese that the decision regarding whether the BBB requirement would be waived by Saipem was a decision that would have to be taken by Saipem's chief operating officer. The BBB requirement is a reference to the provision then in the draft COA close out agreement that the new guarantee, which was to be provided by OGEC, was to be provided by a bank that had a rating of at least BBB by Standard & Poors.
Following that meeting, on Monday, 26 November, OGEC emailed Saipem, saying:
"Please find here attached OGEC comments on close out agreement rev 3 received on 31 st October. We kindly request your availability to meet and finalise the close out agreement within this week, suggested date 28 November."
There was no such meeting as requested, Ms Trolese says there was a telephone conversation with Mr Careddu, although she makes no reference to its content in her witness statement.
On 28 November, Saipem sent to OGEC an email with an attachment, which was a revision of the draft of the close out agreement. The email said:
"Reference to your...
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